Uncommon Wisdom

Amazon’s third quarter earnings disappointed almost everyone, and the fact that there were so many different views about just what was disappointing makes it all the more challenging to analyze. Many said the profit picture was the problem; Amazon’s margins have been thin historically, and the Street wanted proof that they’d fatten up. They didn’t get it. Others in the Street said that their revenue was light; they could have forgiven smaller margins if revenues were up. Probably the combination was the real problem: Weak revenue guidance for the holidays combined with a clear indication that build-out in EC2 and the cost of the Kindle Fire would be a problem for the bottom line.

Underneath this is the fact that Amazon has been a challenge for the Street. They’re the drop-dead winner of the online retail game. They’re the largest single provider of cloud computing today. They now have what is arguably the second-best tablet and the Android leader. But they’ve never really generated the profit that would normally be demanded of any company, and in terms of stock performance they’ve outrun even Apple this year. The Street clearly thinks they have momentum (which is key in the way traders make decisions) and yet…

Some things are up, some are down, I guess. That seems to be true with regard to tech signals this morning, anyway. Oracle is buying RightNow, a CRM cloud player, and the Street is reporting issues with hardware sales, both in the service provider and enterprise spaces.

The RightNow buy is interesting in a couple of dimensions. First, it shows that Oracle really wants a presence — a major retail-level presence — in the cloud. The company has been a provider of all sorts of interesting cloud tools and it made a recent push for the cloud in OpenWorld, but this deal is a here-and-now move with a big investment behind it. Second, the move shows that CRM may be a very critical app for the evolution of cloud relationships with users.

We’re kind of past the early hype days of the cloud, and Oracle likely now realizes that players like Microsoft and IBM have a more established position in the PaaS and SaaS models of the cloud, where I think all the indicators say the real action will be. Part of the problem with being only a tool player is that you have no play in potential service revenues, but the real problem is that you have no tools to transition users or operators into installing your tools. You need to be a cloud services player if you’re a cloud infrastructure player.

Salesforce may be the target of the second motive, or just “collateral damage.” CRM is an application that lends itself to SaaS because it’s largely contained; it doesn’t have an impact on the big mission-critical core apps. That makes it easy to consume, and that means that Salesforce gets a lot of early adopter opportunity. You could see that in their numbers this quarter. So, this early lead could be a long-term problem for Oracle if Salesforce starts branching out into more and more stuff—which it has. I don’t think Oracle thinks that cloud CRM in itself will keep the lights on, but it does likely think that it’s a camel’s nose that it doesn’t want someone else sticking under an Oracle customer’s tent.

On the hardware front, the Street is now saying that both AT&T and Verizon will be under-spending in Q4, with (no surprise) wireless less a problem than wireline. Operators have to show a profit like every other public corporation, and there is increased pressure on ROI for infrastructure, particularly with wireline. The quarterly reports from both AT&T and Verizon suggested that you can’t make wireline work unless you can deliver multi-channel TV because people won’t pay for premium broadband even if you can deliver it. I think it’s pretty clear that operators are looking to shift more capex out of network equipment and into IT equipment, both to host “cloud services” and to host service features. This is what network equipment vendors should have been working to avoid for the last four years, but they didn’t really start picking up on the shift until this year. I’ve seen a LOT of progress among the equipment vendors in positioning their service-layer offerings, targeting not only content and mobile but also the cloud in general. But “a lot” isn’t enough because the momentum away from ‘thinking of network vendors as service partners’ has become pretty strong.

HP is now “officially” reviewing its decision to shed its PC unit, and I’ve got to admit that I’m not convinced here. As I’ve blogged before, the PC market is commoditized very thoroughly and there are few indicators that it’s in any way symbiotic with the server and data center software spaces. IBM, the poster-child for success in the tech business, shed their PC business long ago. Why does HP believe it can justify retaining it now? Especially given that they’ve discredited the whole line to a degree with their earlier decision to spin it out?

The only way HP can recover from this is to articulate some brilliant strategy that creates a cloud ecosystem that includes the PC, and I wonder whether it’s capable of something that radical, or even whether such a positioning could be articulated at all from the PC side. Apple, which has its own set of announcements in the cloud space, would have the pizazz to make a cloud appliance move, but that’s because Apple has differentiable brand power behind its appliances. Google could do the same. HP? Come on!

The Apple iOS 5 and iCloud launch today, and while frankly neither are particularly revolutionary, they are still credible steps toward what might turn out to be a revolution. The iCloud mission seems now to be one of creating “unity” among the iOS devices, meaning to create a virtual iOS umbrella that covers everything Apple and essentially makes iOS a virtual operating system (OS) residing in part in every appliance and also in the cloud. What Apple has not yet done, but that I’m confident it will do, is to realize the potential of that model with services beyond collective iOS chatting.

We could call what’s likely to emerge from the Apple/Google/Microsoft dynamic “social communications,” but it’s also arguably the first step toward network-supported behavior modification, something that’s going to unite identity, location-based services (LBS), demography, buying/shopping behavior, advertising and promotion, and a bunch of other things. Why? Because it creates a kind of parallel universe in (dare I use the cliché) cyberspace where our alter egos have electronic tools and systemic knowledge they share with the real us through our appliances. That’s the end-game for everybody.

There are signs that the networking industry is doing a bit more weaving and bobbing as it looks for a position that sustains revenue and profit growth. One big item is the story that Sony is going to buy Ericsson out of their longstanding handset partnership. The deal here, as the story goes, is that Sony wants to spread its technology across its whole line of appliances, from phones to game systems, and get considerably more aggressive in the market. I’m told that Ericsson has not been excited about either of these points; conservatism has always been Ericsson’s weakness, in my view.

Sony is right in this case. Apple has demonstrated that the notion of a separate smartphone/tablet/game system market is unlikely to prevail in the real world. What’s really happening is that there’s an appliance market that shows (at the moment) three distinct faces. Some users will accept them all, and others will gravitate to one of the group, depending on how they balance the various applications and issues. The point is that it’s likely that all of these appliances will have a feature base in common, and that symbiosis among the devices will be important for players who want to keep multifaceted buyers in the vendor’s product domain.

This is also reflective of what Apple needs to deal with now, in the world it created. Things like televisions are clearly going to join the appliance ecosystem, and other stuff probably will, too. But what’s going to matter more is the experience that can be delivered through all this stuff, not the exact boundaries of the “stuff space.” Apple TV isn’t important except as a member of the Apple Ecosystem, and fleshing out that ecosystem is a job for cloud-hosted features, something that Apple is yet to demonstrate it grasps.

But then, Google hasn’t demonstrated that, either. Only Amazon so far has any cloud reality — and even there it’s not completely clear that they have a strategy or whether they just stumbled into a couple of gold coins from a pirate horde. Can they find the rest of the loot? We’ll see. Continued »

There’s no way that any blogger in technology could not, today, offer a tribute to the greatest innovator that the technology industry has ever known. Steve Jobs was a true giant in a world of pretenders, a man who understood the technology and buyer sides of the coin when others simply flipped it. His genius was to drive the market and not just respond to it, which made him all the more a standout at a time when it’s hard to find companies that can even keep up with change. Steve produced it, and loved that role.

Apple — and Steve — gave us the current market revolution. By marrying portable power with ubiquitous broadband he ushered in a new era where the average teen can have, literally at their fingertips, computing power that dwarfs what was the world’s computational supply just a few years ago. We’ve yet to see where this can take us, and I’m personally saddened that we’re not going to have Steve to help guide us in the journey.

The Carrier Cloud Forum at Interop New York this week is grappling with some of the issues that Steve Jobs created. Appliances demand back-end services to support them, and the way those services are created and the identity of those who offer them may well be one of the major issues in networking. I’ve noted that operators in my surveys have been steadily promoting the cloud services opportunity among the monetization projects they have been running, and it looks like it could be the top of the list this fall. It’s not that the cloud offers operators the largest opportunity — mobile/behavioral services and content both outstrip it — but cloud infrastructure is what’s likely to host those content services and mobile/behavioral services. Appliances have coalesced all of the opportunities of the future into one delivery point—what the user is holding. The cloud coalesces all the technology options into one, admittedly fuzzy, vision.

I think CCF demonstrates that we’re still shadowboxing with the issues, though. The fundamental truths of cloud computing remain as they always have been. SaaS displaces the most cost and therefore offers the greatest benefit to buyers and profit to sellers. IaaS is the most flexible, but it presents both benefit-case and profit barriers to wide adoption. All the “-aaS’s” will face a common issue of service- and application-level integration, which is something nobody is really looking at. That integration will likely set the pace for the question of how clouds and networks get along, because the general solution at the service layer would produce a flexible solution at the service/network boundary. We’re not looking for this in the cloud computing space, but operators are looking at it in their own service-layer projects, which include both mobile/behavioral and content. Can all of this stuff be combined? Not yet.

Apple is expected to launch its iPhone 5 this week, and like all Apple events, this one is generating more than its share of speculation. It’s like a red carpet event for the Apple aficionados, but rather than focus on that, I’d prefer to look at the industry implications of what’s rumored to be happening.

First, the cloud. Amazon stole some considerable thunder from Apple with its Silk split-browser model because Amazon exploited a true cloud computing service to enhance a customer’s service. That’s the service layer model of the future. There are some indications that Apple will do more than just spin a “content hosting and sharing” model of the iCloud, including inter-iPhone messaging, but it’s not clear that these offerings are going to be positioned as part of the cloud at all, which I think would be a further mistake on Apple’s part. Amazon is a retailer, not a search giant, and thus a whole new kind of competition for Apple. They need to take these guys seriously.

Speaking of clouds, France Telecom has again said that the cloud is of critical importance to it and that it’s looking hard at the union of IT and networking needed to create it. This fits with our general survey results: Operators are increasingly seeing the cloud as the thing that hosts the service layer and the thing that hosts specific cloud-computing services. The question is how the two get combined.

Well, Amazon finally announced its tablet. The event itself might have offered some clues because Apple would have done this in the Superdome, and Amazon had something that looked more like a high-school auditorium.

Bezos set the tone for the launch with a long praise-fest for the Kindle and the ebook and e-ink concept. Then he jumped to talking about the Kindle Touch, which is an e-ink product that’s an advance from the current Kindle but much more like Barnes & Noble’s newest Nook model, a cross between a tablet and an e-reader, but much more the latter than the former. This new Kindle Touch has a $99 buck price point (for WiFi; $149 for 3G), which undercuts the new Nook.

But it’s obvious that Bezos couldn’t stop there. Ten thousand or more media and PC analysts would likely have stormed his castle and burned him alive. After blowing Android Kisses, then touting new media and app stores and Amazon Prime and even EC2, he finally got to the point. The future is media and cloud service offerings! It’s Kindle Fire. It’s not a tablet, but a Media Cloud Appliance!

Let’s come back to earth for a moment for the specs. Fire will have a dual-core processor and a seven-inch screen, making it a less-than-iPad right there. The announcement is likely to be disappointing to many who had expected Amazon to field an iPad-like product for about the same price as the HP TouchPad sold at “after-the-market-exit” fire sale. Yes, that would have been wonderful, but as my readers know, I’ve never believed for a minute that was Amazon’s intent, and clearly it was not. Continued »

Well, Meg Whitman now has the responsibility for making the right move at HP, and frankly I’m not encouraged by some of her early comments. The only thing that seems to be on the table, of all the changes that brought down Leo Apokether’s reign there, is the fate of the PC business. That may well be the only thing that was a smart move. What HP has to avoid above all is business as usual, and the second-greatest risk is looking indecisive. With one chance to get it right, Whitman seems to be getting it wrong.

PCs haven’t been a great business for years now, simply because consumerism has driven down the prices and tipped the scales of innovation to the software side. The hardware platforms are all basically the same, no matter what Mac aficionados think; it’s the operating system and software that matters. Even there, price pressures are formidable. Now with the onrush of tablets, we’re seeing the web-client dimension of PC use vanish, and with it likely even more of the profits.

HP’s problem was that it didn’t see the tablet shift coming, not that it needed to be more of a software player. The thing that HP needed was a cloud vision, a vision of a future of network-connected appliances that could marshal a lot of power and knowledge and focus it on something a user was carrying around in a pocket, briefcase, or purse. Yes, software is an element of that, but it’s not all of it.

I’ve learned by talking to users worldwide that everyone understands the pieces of the cloud, but it’s the cloud as a conceptual whole that they don’t quite get. As a whole, the cloud is the notion of a new ecosystem with new relationships, new value focus points, etc. HP might have shown us that conceptual whole, by dumping PCs and focusing on the cloud. Instead HP dumped PCs and dumped the cloud too, and Whitman is proposing to rethink the dumping PCs part. Maybe she thinks that’s best now because it’s too late to get the cloud back, but it’s not going to work.

There’s a lesson here in the networking side. The cloud is a symbol of the new age of communications-connected intelligence, the age that empowers every client because it’s connected to every possible service. This is an age that networking has created; one that’s not generating value to networking in proportion to its contribution. That’s because network executives have been just as blind, dare we say as dumb, as HP was. The cloud should have been their vision, but they were simply not agile enough to grasp it.

Networking companies recognized, as HP did, that somehow software was involved in the solution, but they never realized that just as “hardware” encompasses both mainframes and smartphones, doorknobs and drawer pulls, “software” means too many things to be a useful goal. “Serviceware” or “cloudware” was needed, and that’s middleware software built on the cloud model.

Another tie here is that HP is now terribly wounded, perhaps even fatally, and this pulls a major competitor off the field in terms of data center competition. HP might have been a leader here, and that’s going to be very hard to achieve in the current situation. Autonomy is the wrong software; rethinking a PC spin-off is the wrong decision. Nobody could benefit here as much as Cisco, who has been punching out at competitors with edgy marketing because it needs to recover its own position.

I sent out the survey material for our fall strategy sweep, and as usual I asked both service providers and enterprises to respond quickly with the answers to the following questions; “What’s the hottest network issue”, “What’s your biggest surprise?” and “What’s your biggest concern.” The answers were quite interesting.

The hottest issue for both enterprises and service providers was “the cloud” by a large margin, larger in fact than prior surveys. In my own view, the broad fascination with the cloud is more than just the typical response to media hype. I’s a reflection of the fact that cloud computing is an explicit marriage of a lot of technology trends, a kind of IT Unified Field Theory. Enterprises, in particular, need some strategic mantra to drive their project spending, some way of linking change to benefits, and “the cloud” seems to be even more favored in that role with each passing quarter.

The “biggest surprise” was a bit of a surprise to me. Both enterprises and service providers said that “the technical and business aspects of cloud computing are not what we expected”. While I knew from prior surveys that there was a considerable shift in enterprise attitude about the cloud as companies advanced the state of their own cloud planning, I wasn’t sure that the enterprises themselves saw this change. It was also interesting that enterprises listed “failure of the benefit case to prove out in our cloud projects” as a “biggest concern” enough times to give that issue the top spot among the technology responses. Continued »

Apple is always a wonderful target for rumors, and the current one is that the company is getting into the TV business for real, launching not only a service but a line of TV sets that would link to it. The idea has the media agog, of course, but no matter who is supposed to be fielding streaming substitutes for channelized TV, there are formidable issues involved, both technical and non-technical. So far, there’s no indication that Apple is dealing with any of them.

The first technical problem is that about a quarter of U.S. households couldn’t receive HDTV streaming properly because their Internet connection is too slow. That means that to save money by cutting the cord, they’d actually have to spend more money. And there’s no guarantee that it would work for them anyway, because many broadband users streaming video at one time could congest networks. Users could also get whacked with usage-over-cap charges if they watched a lot of TV. Continued »